Benson Hersch (pictured) warned the climbing level of debt from both government and personal borrowers not only spelled bad news for much-needed housing investment, it was also making people vulnerable to interest rate rises.
“The biggest risk the UK faces is the level of both personal and government borrowing. It is this that jeopardises both the level of housing investment and our ability to withstand any shocks that the Brexit process may bring,” he said.
Citing forecasts by the Office for Budget Responsibility (OBR), Chancellor Philip Hammond declared in his Budget speech Britain’s debt would rise to 86.6% this year, before peaking at 88.8% next year. It would then fall to 88.5% in 2018-19, before continuing to decline further, reaching 79.8% in 2021-22.
Overall, public sector net borrowing as a percentage of GDP was predicted to fall to 2.6% this year, before rising again to 2.9% in 2017-18 and then falling over the remainder of this Parliament.
But Hersch said the levels as a whole were too high. “Only a few years ago the previous Chancellor said government borrowing would peak at what sounded like the horrendous amount of 80% of GDP; in the budget today Philip Hammond declared that will now reach 88% of GDP in the 2018/19 financial year. Each year we spend £50bn on debt interest. That’s more than on defence or foreign aid,” he said.
He argued the levels of personal debt also continued to climb, posing a dangerous combination for borrowers, especially as rising inflation was likely to bring about a move away from the current low-interest environment.
The OBR had forecast inflation would hit 2.4% this year, 2.3% next year and 2% in 2019. Figures from the Office for National Statistics (ONS) showed in February that UK inflation had risen to 1.8% in January, its highest level in two and a half years, and bringing it to just below the Bank of England’s 2% target.
Hersch said: “Borrowers are increasingly vulnerable to the threat of interest rate rises that will inevitably come to counter the predicted rise in inflation to 2.4% this year, a level of inflation that may yet prove to be conservative following a renewed drop in the value of the pound.”
The pound had initially fallen to a seven-week low against both the euro and the dollar following the Budget.